The Euro Fade & King's Letter #5 - The Euro moved up against the USD after German investor confidence increased this month but gains were capped due to persistent negative sentiment towards the Euro. The German ZEW index, which aims to predict developments six months in advance, increased to 15.7, from 15.4 in January, its fourth monthly gain. However, the Euro continues to be weighed down by upcoming elections in Ireland and parts of Germany, Portuguese bond yields over the magic number of 7% (which was the yield that Ireland and Greece had to throw in the towel), the lack of a comprehensive plan to tackle the sovereign debt crisis, and uncertainty over the next ECB president. I continue to recommend that any Euro rally should be shorted. In the UK, the GBP rose after U.K. consumer prices rose to the highest since November 2008. UK CPI rose to 4% in January, in line with economists' forecasts, from 3.7% in December. The implied yield on the short-sterling futures contract expiring in December increased 0.04 percentage point to 1.75% as traders increased bets that the Bank of England will boost interest rates. BOE Governor Mervyn King will now be forced to write letter #5 to the government explaining what remedial action will be taken. In Asia, China's inflation data came is softer than expected easing concerns that the world's No 2 economy will have to tighten monetary policy more aggressively. This has helped fuel the risk trade rally. In the US, the USD extended its losses against the Euro and trimmed its gains against the Yen after US retail sales rose less than expected. The Advance Retail Sales report for January showed a 0.3% increase in overall retail sales against an expectation of 0.5%. Also, figures for the prior month were revised downward. In Canada, the CAD continued to crawl higher within a tight range as firmer oil prices and the continued rally in the risk on trade.
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